The Exchanges

Q When you brought in Laterals, when did it work?

A It's really a tremendous success in our international geographies, and over time, it's been a tremendous success in some of our new businesses, and I think selectively in some of our verticals where we've had the need to bring in that kind of vertical talent, but the common thread for all of those is that The minute that person got there, they understood how they could get impact from this platform. Yuji Sugimoto runs Japan. We have a tremendous franchise in Japan. Yuji understood that he could partner with all of our industry verticals in the U.S. to have that much more expertise to talk with management teams in Japan to do scale deals by not only having an Asia fund, but having a U.S. fund that could collaborate with the Asia funds. Most of the folks that have been successful, they immediately get here and then they look around at the firm to figure out where they can get collaboration and support to fill in where they couldn't otherwise do that on their own. And so it is that ability to reach out and then the reciprocation of that from our partnership.

AI assessment note: “the common thread for all of those is that The minute that person got there”

Q And what was the scope of it back then in terms of even just asset size and the industry as a whole?

A It's a funny fact because I think we were the tens largest fund when I joined and I think our first fund was around thirty seven million dollars. And that was the 10th largest fund. Now, mind you, today, between all of our global, at least private equity funds, we're about 23, twenty-four billion, including our own capital, so, and today, we're about probably the 10th largest fund, so it was different in scale, but the concept was the same. We were trying to grow top-line, double-digit, grow double profits over five years. The percentage of equity back then was very small, so if you could double profits and Five years, you could make 10 times your money. In fact, one of the big metrics that we all often sought was 10 times our money in five years, which is a 55.8% return, which was what we targeted. We didn't always earn that, but, but it was part of our targeted objective given operating performance like that combined with leverage could generate substantial returns.

AI assessment note: “I think our first fund was around thirty seven million dollars.”

Q from equity to credit, There's always this question of, are there conflicts? You've got a privately held company, you own the equity, you could or may not own the debt. There's an issue if you do own the debt, maybe there's an issue if you don't own the debt. How have you thought about working out the various potential iterations of where conflicts could arise across your products over time?

A Since we started so early, In the debt business, in the public equity business, we were worried about this issue that you're describing, Ted. I mean, I think so worried about it that we actually didn't call those companies or those businesses Bain Capital. We called it Sankity for our credit business, and we called it Brookside for our hedge fund business, because we were worried about you walk into a, a CEO who's a public company. If, if they see Bain Capital, they're gonna run for the hills. Oh my God, you're gonna take my company private. And same thing with credit. Can't walk into another sponsor with a Bain Capital business card. It wasn't until I think it was six or seven years ago that we thought, wow, it's like, let's check that premise. It actually has been incredibly powerful to rebrand all of those businesses being capital. And we've gotten so much advantage that it really has allowed us, particularly internationally in Asia, to leverage a single go to market, at least from a sourcing standpoint. That we haven't really seen the conflicts. You know, we're not loan to own investors and credit. We're not actually trying to restructure businesses as aggressively as some other people that are in those businesses. We're either a secondary participant in credits or we're primary where we're not providing capital even in the same size. You know, our mezzanine business is mos…

AI assessment note: “we haven't really seen the conflicts. You know, we're not loan to own investors”

Q Were there a marquee deal or something that as a firm you look back on today and tell the story over and over again about a particular situation from the early years?

A The way I was introduced to Bain Capital was we were looking at the oil field equipment industry, which In the late eighties, as you know, when oil went to its lowest level at that point, there was a lot of carnage, a lot of challenges, and Baker Hughes had bought an oil field equipment business, and that happened. You know, all of that carnage happened to this business. It was in the offshore drilling and subsea wellhead business, a very exciting business. I spent a lot of time in Aberdeen, Scotland, and Singapore, and of course, Houston. But we ended up Convincing the sellers that we would be the best operators of the business, and so the sellers in this case had two hundred million dollars of preferred on a business that was losing fifty million dollars, and they asked us to put up some money at least to show that we had some risk capital, so we put up seven million dollars. For a business that was losing 50. Now, the good news is that we did operate it well. The oil business stabilized. We invested in some really interesting new products, and we ended up making 40 to fifty million dollars by the time we, we exited to, say, Brown Bavari. But it's a great deal because it had shown at the time that we could do what we wanted to do, which is understand an industry in dislocation. We could do what we wanted to do operationally. We invested in new products. But actually, the thin…

AI assessment note: “we ended up making 40 to fifty million dollars by the time we exited”

Q change hands from a private equity owner to another private equity owner. So you're buying something in some instances from another sponsor thinking you have a differential insight. You're selling it to someone Who has a differential insight, and in some instances, you're teaming up with people along the way. How do you think about where you want to position as a competitor compared to a cooperator in the ecosystem?

A Well, yeah, there's a lot of history behind this, but if I could challenge the first premise, we're all competitors, and I don't think anybody chose to be in a club deal to be a cooperative competitor. I think they were just doing it Through their own commercial self-interest. I mean, even HCA, which I worked on, which is a thirty-three billion dollar deal, five billion dollar equity account. At that time, there's no way that a single sponsor could do that deal. One of the reasons why this has changed a lot since the global financial crisis is that people can do deals with larger fund complexes on their own, and they choose to do that for this very reason. The only time There is a partnership is there has to be a specific commercial reason. So we partnered with Advent, for instance, in the payment space. We've done a serial number of deals. We've done five or six payments deals right now. But the beginning of that partnership started with, they really knew the U.S. payments business. We had a strong Europe presence and a great relationship with a seller in that case. The equity count was of a certain size that it made sense given our own concentration risk. So we started a journey with, with Advent on That payments business, WorldPay, in the very beginning. What happened is that then a bunch of other payments business came up, and so it was logical for us to kind of roll into t…

AI assessment note: “we're all competitors... The only time There is a partnership is there has to be a specific commercial reason.”

Q decided advantage. That's why customers call it miraculous, game-changing, and an awakening. If that's not how you would describe your investment management tech, request a demo at ridgeline.ai. And now, back to the show. So you've stayed private all along. As you mentioned, a bunch of your peers have gone public. What have you seen as some of the internal debate about whether or not to take being capital public?

A So we have to debate whether our premise around how we think about those issues is correct. For instance, the ability to start new businesses. I've heard that as something that is enabled by being public. Retaining and attracting people. I think brand, as it relates to capital raising, balance sheet, as it relates to having capital to do things more flexibly. All these things have been elements of what I've heard, at least, are reasons to go public. I think as an irony to all that, I think our ability to have a balance sheet, I think, is far more attractive because we've raised it incredibly low cost capital long term, whereas I think equities are very volatile, so the cost of capital is not always there. When you need it. I think that in terms of attracting and retaining people, I think people who come to a firm where we have a hundred percent of our economics to invest in our people and our partnership versus having 50% of it gone forever, I think that's fundamentally more attractive. Starting businesses, we've started eight new businesses since 2015, and it's all with our people, and I think the opportunity to do that not by having a brand, And capital, but by having people who have decided they really wanted to really pursue an opportunity here at the firm, I think that's a huge advantage for us. I look at all these sort of things that are intended to be advantages, and yet…

AI assessment note: “we have to debate whether our premise around how we think about those issues is correct.”

Q As you look back over the years, somewhere along the way, you run into some challenging times. As you look back, what were some of those most challenging times and the most important things that happened for the firm to get through it?

A I think the GFC is really an important one because we were all riding a very attractive tailwind. We were also riding a very attractive development in our business model. There was like the top six firms and they all grew very fast and they all had different strategies, although A lot of people thought we were the same, but at the same time, we all were very active from 2005 to 2007. And that was, as they called it, the golden age of buyouts, which turned out to be anything but. And we did a lot of reflection at the time because we thought we could power through with our own operating capabilities to drive outcomes independent of the macro environment that could ever be considered. And so we looked at cycles in the past and we thought we could live through cycles. We would Operate through them and still great returns, but the GFC was a bit different. That was the biblical recession that none of us had ever seen before. And so for us, I think we learned a lot in the sense that macro and cycles are to be things that you can be humbled by very quickly. And to scale into that, many of us invested very quickly in the oh five to oh seven period. And we all basically correlated to the same return. And out of that came I think a lot of soul searching for firms about how are they going to create even more value? Or are they going to scale? How are they going to scale? What are you going…

AI assessment note: “I think the GFC is really an important one because we were all riding”

Q How have you thought about the increase in competition over the years? In the early years, the bank capital model, that consulting-driven operational improvement may have been one of the few important players doing it, and now you have a lot of everything.

A First of all, I do laugh a little bit because there is this check the box strategy now for if you're in private equity, which is you have to be strong in your vertical, you have to be global, You have to have value creation. You have to specialists. I think there's a difference between having those things and being able to operate those things successfully, and I think that the one thing, again, it comes back to the culture that we've done really well is, one, is integrating those elements of the business. So yes, it's gotten a lot more professional at value creation, and all the different specialists in talent and IT go to market All these things have gotten way more sophisticated, and verticals are far more deep than they've ever been in terms of what you need to know about a sub-vertical, let alone a vertical. And being deep in a geography, a hundred people in Japan, these are all things that are table stakes to be really successful is that depth that I'm describing. But then how do you bring it together? If you're doing an industrial deal, our ability to take 40 years of experience doing industrial deals, 40 years of value creation efforts, And getting better and better at them every year in our value creation capabilities. And then having that team that does the delivery of outcomes partner with the people that are underwriting the deal, and even the portfolio team being p…

AI assessment note: “that integration is core to what I think makes us different”

Q What were some of those challenges to growth along the way? It's never a smooth path.

A Well, I think that one of the things that's unique, we don't have a CEO model. I'm a managing partner at Bain Capital, which means I serve my highly ambitious and, and highly needy partnerships, desires for what I should do. And the truth is, when we started to build scale, and we were in five businesses, we actually got into credit and public equity and venture before anybody else in the late nineties. We acted And operated as partners, and we're a consensus-oriented, team-oriented, collegial environment, but we didn't have the single point accountability that you really need as you scale, and so working through committees, and working through part-time jobs to manage business units, or geographies, or even the firm, it didn't work as well, particularly through the, the GFC, and so I think that what we've done a lot over the course of the last 15 years is Really build the benefit of the partnership and that, how do we all work together to increase the size of the pie and, and all of that ethos is still alive and well, but also have single point accountability in our core business units and geographies and even verticals, which I think has helped a lot and made us a more effective organization.

AI assessment note: “we didn't have the single point accountability that you really need as you scale”

Q If you take that and look at, let's call it across the strategy level, right? The unit is a business, and you started at venture and private equity, and as you mentioned, there's credit, there's public investing, there's real estate, real assets. How have you thought about what's worked and what hasn't as you evolved from just private equity to all these other strategies?

A It's a really great question because as you mentioned before, you know, that's the first question your LPs ask you, why are you doing that? And particularly in these days where there's this race for this holy grail of, of assets under management and, and actually, honestly, we've never pursued assets under management. We're still a little bit of like a hyperscale family office. We have all these great businesses, but partly it's because we want to invest in them behind people we actually Feel are capable. But the two things that I look at are, one, do we have the right person to lead that effort that we have enormous comfort with? We're not a franchise model. Our culture is fairly well-baked at this point, and I think it's a good one. And so finding people that identify and want to work within our culture and ultimately can be capable of running that kind of business, that's critical. So we have nine businesses right now. Eight of those nine businesses Were started by somebody who started out in that private equity business you described. So they had to almost learn, if you will, that other business. So the good news that what they had going for them was credibility and they had relationships, but they had to understand the public equity business or the credit business or the tech ops business or the life sciences business. But then we married those folks with laterals and grea…

AI assessment note: “the two things that I look at are, one, do we have the right person”

Q What's been your biggest investment mistake and what'd you learn from it?

A I have this very simple saying is if you don't understand it, don't invest in it. I invested in something where it was growing incredibly fast. We got a great deal on it relative to anybody else. We had an angle on it, but the model itself was pretty darn complicated. And it didn't pass the elevator test of really something that had the longevity and robustness that the metrics would suggest. And by the way, it was interesting. We, we had a tombstone for the, for the closing. It was called, it was a rocket ship, which kind of was a bad sign. And it went really well for about a year and a half. And then all those unravelings of the business model happened and, and we lost all our money. So I think in investment committees, what I've learned is ask the simple questions like, Do you understand how this business works? Don't just look at the numbers and the financial trajectory. Do you understand? It's a very simple question, but oftentimes people get caught up in that.

AI assessment note: “and we lost all our money. So I think in investment committees, what I've learned”

Q Who was it that came around the table and decided, let's turn this into private equity?

A It was ironic that when we started, we were advising Fortune 100 companies, but once we got into it, nobody was going to give us capital. We didn't have LPs that were institutional. We didn't know anybody on Wall Street. We actually started out in venture capital and growth equity because you could just write checks, didn't rely on other people's checks. And the money we raised was from the partners at Bain and the principals that started the firm and foundations and family offices, not big institutions. We started that journey on the idea that we could help those businesses, but they were small businesses. And so the resources to go into all these little companies was not as enticing as something where you could get into buyouts. Larger companies really think about operating and strategic issues from a higher altitude. And I think that's the evolution that we saw that made this really interesting for us. It was a little bit going back to the origin of what we did at Bain, which is let's advise big clients and do buyouts and actually transform strategically and operationally. It was very Uniquely, not people from Wall Street. Mitt Romney, who was one of the most successful consultants at Bain, he wanted to find a path, a lane for himself. He was very talented and was terrific with relationships with management teams. Smart, smartest guy out there, but he wanted his own lane, so…

AI assessment note: “Mitt Romney... he plus a bunch of former consultants said, let's do this.”

Q How do you think about developing the people once you brought them in?

A Well, get them early. Honestly, we were the first ones to really start recruiting right out of college or certainly right after a couple of years in their first job, and I think getting people in early to really get the mentorship and training From people more experienced over a long career. You know, I've been here for 35 years. I think there are those that are in the senior team who have been here for 25 or 20. The original founders, same thing. So it takes a long time in this business to develop expertise and relationships, especially in our model, which is so team oriented. That training is going to take a long time, and we committed heavily to it. We also had the benefit of Bain & Company and the consulting culture was a training and development culture, which is very different than a lot of the Wall Street orientated firms.

AI assessment note: “getting people in early to really get the mentorship and training From people more experienced”

Q How did you think over the years about either promoting or putting someone into a role to go run a new business compared to their hiring or bringing in a team to run a new business?

A We like to say we don't like to feel like we're the stereotypes of our industry and we have a different set of Core utility functions that make us successful. One of them is a desire to collaborate with the platform, and as a result of doing that, you become really a lot more successful than you could do on your own. Most people, when they look at a platform, look at it the other way around, if they're coming in laterally. They think of that platform as a great place for me to individually exploit my incredible capabilities with the Bain Capital brand. And when people do that, they don't collaborate. They're just looking to leverage the brand to effectively become more successful individually. The number of people that got turned over in the international expansions of a lot of the multi-strats in Europe and Asia has been amazing. We've had the same country managers in Japan, in China, in India, Korea, and Australia from the very beginning, and we've been there for 20 plus years, whereas I think our industry has just found they bring Laterals in, and they want to be part of the platform, and if they're successful, they spin out again, and if they fail, it's because they're not that successful as investors.

AI assessment note: “our industry has just found they bring Laterals in... and if they're successful, they spin out”

Q Now I know alongside of all of these direct investment activities, your partner's capital Created a fund, I don't know if it's called Partners Capital, that are outside manager investments, and I'm curious when you put the LP hat on, what are some of the lessons you've learned from engaging in those activities that are different from the Bain Capital Direct Strategies?

A I think that effort and those investments are largely on things we don't do, although it didn't start out that way. I mean, it was a bit Well, like, you know, the partners had a lot of friends, and we were doing direct stuff off our side of our desk, and it wasn't the way to run a railroad in your own personal portfolio, and so I think we focused that effort a lot over the years to be one where we're really leveraging the white space that we're not engaged in, so emerging market public equity, seeding investments in new managers that engage in activities in macro investing, or, and so what we've used that vehicle To accomplish is to fill in some of the, some of the white space that are not mandated by our current investment activity, which makes it more complimentary and then fills out what general asset allocation might look like, at least in alternative assets. And so from that standpoint, I think the lessons we've learned alpha is all about the manager. You know, it's not about the asset class. So not only have we learned that we want to invest behind some of these managers that are in that fund, we've actually seeded some of them. So we actually want a piece of this GP. So it's a, it's taken it one step further to say, look, we want to make sure we qualify this for our own capital. We also want to make sure we can even invest behind making that business scale. And so that's…

AI assessment note: “I think the lessons we've learned alpha is all about the manager.”

Q What do you think will define the winners and losers in that landscape?

A It's a hundred percent people. Look, I do think the all asset space, there's a long time between when the active management public space went from being a really people driven business to becoming a more distribution business and more commoditized. I think in the same way, but way earlier and way, way harder, the private space is definitely about the talent to the people that you can attract and retain. And so from our standpoint, That's where the I, the prize of how you structure yourself, how you create a culture, and how do you make it exciting for people to want to come to work in this industry, which, by the way, creates a bigger pool of people coming into the industry than I think would have come in 20 years ago. And so all those elements, I think, still are critically important.

AI assessment note: “It's a hundred percent people.”